In Christopher v. SmithKline Beecham Corp., the Supreme Court held that the Fair Labor Standards Act (“FLSA”) exempts pharmaceutical companies from having to pay overtime wages to sales reps.
At issue was whether or not pharmaceutical reps are deemed “outside salesmen”. If not, the reps would be entitled to overtime pay when they work over 40 hours per week
While the case was being heard by the Ninth Circuit, the Department of Labor (“DOL”) filed an amicus brief stating that a “sale”, for the purposes of the outside salesman exception, required a “consummated transaction”. At the Supreme Court level, the DOL changed its definition to require that title to the property at issue change hands. The Court declined to accept this definition noting that the pharmaceutical industry had long operated under the presumption that its reps were exempted as outside salesmen; a presumption never challenged by the DOL. To change course now, the Court held, would be to subject the industry to an “unfair surprise”.
The Court then turned to the FLSA for guidance and concluded that defining “outside salesman” requires an examination of the specific industry and whether the actions of the sales reps bear the hallmarks of a traditional salesperson. Noting that because pharmaceutical reps spend the vast majority of their time obtaining commitments by doctors to write prescriptions for a specific drug, and that the only people allowed to actually “sell” drugs to consumers are pharmacists, the Court held that the reps function as outside salesmen thus exempting the pharmaceutical companies from having to pay overtime.
While this opinion is directed specifically at pharmaceutical companies, its reasoning has broad implications. When determining whether to pay overtime, companies should be cognizant of common industry sales practices, DOL regulations, FLSA provisions, and what functions salespeople perform. Given the high number of hours salespeople often work, taking the time to makes these determinations is well-worth the cost.